House prices have increased dramatically since the government and Reserve Bank intervened as we entered our first lockdown in March and April 2020. As house prices fall, one must ask what is happening with rents. Have rents ever fallen in New Zealand?

We need to look at the data supplied by MBIE (Ministry of Business, Innovation and Employment) from the number of bonds lodged by landlords to get an answer.

Since February 1993, records have been kept tracking the number of bonds lodged, held and closed each month, and which properties are rented and for how much.

Rents are stabilising. From January through to July this year, the geometric mean rent for New Zealand dropped from $526 to $516 per week.

That is a drop of just under 2 per cent. Rents tend to spike at the start of the year due to student tenancies starting in January and February.

INCOME AND SUPPLY

For the first six months of 2022, the average increase in rents for the same period in 2021 was more than 7 per cent. The last four years have seen rents increase at a faster rate than they historically have in the past.

Since records began in February 1993, the average annual rent inflation has run at 4.35 per cent. However, rents have increased between 5.5 per cent and 6 per cent over the last four years per annum.

Unlike sales, where prices are primarily impacted by people’s ability to borrow and the impact of interest rates, rents are more likely to be affected by the tenant’s income and the supply and demand of rent stock.

The cost-of-living crisis has been well documented. There are increased inflationary pressures on the population, such as fuel, power and food, as well as a rise in available rental properties due to the slow housing market, meaning that some vendors are deciding to rent their properties rather than sell them. We cannot assume that rents will continue to increase at a rate of 6 or 7 per cent per year. A slowdown in rent increases is inevitable.

In recent years I can think of two regions that have witnessed falling rents.

DRAMATIC FALL

The first was Christchurch (between 2014 and 2019). This was due to the post-earthquake rebuild, resulting in an oversupply of property for sales and rentals. Rents fell for a period, but hardly by any significant amount. In January 2015, rents peaked at $410 per week. In January 2020, the geometric mean rent was $407 per week.

The other more dramatic fall was in the Queenstown region as the Covid pandemic began. In February 2020, the geometric mean rent was $638; within two months this plummeted to $476. A fall of over 25 per cent.

However, have we ever seen rents fall in NZ for an extended period? The answer is “no”.

The closest we could find was between 1997 and 2000, where rents stagnated at around the $190 mark, and in 1999 we saw a slight drop in rents of approximately 0.5 per cent. Other than that, rents have never actually fallen.

This does not mean they never will. While unemployment is at record low levels things should be OK. I believe we may be in a period of stagnation for rents, which may last for about one to two years.

Things can change. Europe will be in for a difficult winter, and depending on our government’s attitude to immigration, we may have an influx of immigrants arriving in NZ. Plus, as tourism kicks into gear, we may see rentals converting to the short-term market, such as Airbnb. We could again find ourselves with a shortage of stock and new money coming into the country, which may put pressure on rents.

David Faulkner is the General Manager of Property Management for Property Brokers and is recognised as one of the leading experts in the New Zealand Property Management industry. He has been involved in the industry developing robust policies and procedures, training, and consultation services for many years.